Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs, contributes his knowledge and ideas about issues that affect the Midwest.

Wednesday, November 16, 2011

Thinking About the Future

It's easy to get that neglected feeling, sitting here in the Midwest, surveying the industrial collapse in our own back yard and wondering if anybody out there really cares. The pre-dawn dustup in Zuccotti Park gets more national air time and ink than the destruction of Midwestern towns and cities, even though the same pathology -- an economy out of control -- underlies both. As Willy Loman's wife said in The Death of a Salesman, "attention must be paid."

That may be changing. In the past few days, at least two nationwide broadcasts have looked at the plight of old industrial cities in the Midwest. Both recognized the economic problems but emphasized positive measures to remedy them.

Jennifer Granholm was the governor of Michigan from 2003 to 2011. Terms limits prevented her from running for a third term, which may have been a relief for her: a first-rate politician and public servant, she had the bad luck to inherit a state economy dependent on the auto industry, just as that industry tanked. When she left office, Michigan's unemployment rate was the nation's highest.

Granholm is teaching now at the University of California, but she's written a memoir, "A Governor's Story." On Nov. 13, Fareed Zakaria interviewed her on his CNN show, GPS, and she talked about some of the lessons she learned as governor.

Granholm said she came into office hoping to do some serious spending on education, including early-childhood education. Instead, she got trapped in the economic storm and ended up cutting taxes and spending, leaving Michigan the 48th most parsimonious state in the nation in the size of its government relative to its population.

All this money-saving may have been necessary, but as she admitted, it didn't help Michigan. The state was caught in the gales of globalization, especially the off-shoring of Michigan's traditional assembly-line manufacturing and the disappearance of thousands of working-class jobs.

In the end, she said, she realized that cutting taxes and spending achieves little. What's important is positive investment -- by government but, especially, by the private sector. A public-private partnership is key, and if the private sector bails out, there isn't much that government can do.

The auto industry lost most jobs. But what seems to have stung Granholm most was her experience in Greenville, a small manufacturing town centered on a big Electrolux factory. When the Swedish owners threatened to move the plant to Mexico, Greenville, the state and the union came up with a multi-million package designed to keep them in town. According to Granville, Electrolux took 17 minutes to turn them down.

It is time, Granholm said, for business to recognize its public responsibility and join government in working to create jobs and economic vitality. Government can give some tax breaks, she said, but only with real strings attached that make business part of the solution.

A day later, I was on the NPR program, Talk of the Nation, when the subject was "Company Towns, After the Company Leaves Town," and two of the guests were Chaz Allen, the mayor of Newton, Iowa, and Tommy Battle, the mayor of Huntsville, Alabama. NASA still dominates Huntsville's economy but has cut hundreds of jobs from space programs there. Maytag once dominated Newton's economy, but the company was sold to Whirlpool, which closed its Newton operations four years ago. Maytag once employed 4,000 people in Newton, a town of 15,000. All those jobs vanished.

Huntsville is outside our territory and, as a town dependent on the government, doesn't face the same global economy forces that most industrial towns do. But things have begun to look up both for Allen, who was re-elected mayor earlier this month, and Newton, which is slowly putting its economy back together.

The differences between Huntsville and Newton, however, are instructive. Huntsville seems to remain a company town, and the company is NASA. Newton used to be a company town, but when that company went away, Newton set out to diversify its economy, hoping to replace one company employing 4,000 people with 40 companies each employing 100 jobs.

It's not there yet, but some progress has been made.

TPI, a company that makes wind turbine blades, employs about 650 people in Newton. A similar company, Trinity Structural Towers, employs 150 people to make wind turbine towers in part of the old Maytag plant, next to a company with 35 employees making cardboard boxes. In the center of town, Caleris, an IT firm has moved into the old Maytag headquarters and employs 300 people. A group of former Maytag engineers has created Springboard Engineering, with about 35 employees. South of town, a new NASCAR track provides tax revenue but has produced few fulltime jobs.

Newton hasn't really turned the corner yet. According to a recent story in the Des Moines Register, Jaspar County, where Newton is the county seat, still has one of Iowa's highest unemployment rates, at 8.1 percent. (The highest rate is Hamilton County, where yet another closing by, yes, Electrolux has decimated the economy. Electrolux may be the worst thing to happen to the Midwest since the corn borer.)

Also, Newton had a large number of white-collar workers, because it was a Maytag headquarters town, and many of those white-collar workers are having a harder time finding work locally than blue-collar workers. Some were employed by Iowa Telecom, which moved into the old Maytag building, but these workers -- including Mayor Allen -- lost their jobs when an Arkansas firm bought Iowa Telecom. (Allen has landed on his feet, as manager of a local bank.)

In addition, the structure of the town's employment has changed. Before Maytag left, 60 percent of Newton's residents worked in the county: today, 62 percent commute out to jobs in Des Moines and other nearby cities. In return, more workers are commuting in: license plates on Iowa cars tell the home county of the car's owners, and I'm told that many of the cars in the lots outside the new wind turbine plants come from outside Jasper County.

There are some lessons here.

If Newton is going for diversification, it seems to be working. In the past century, far too many Midwestern cities relied on one company or one industry. Those cities are imploding now, as the companies, like Maytag, leave. Diversification is smart.

It helps to have been a headquarters town. Company headquarters, like Maytag in Newton, employ managers, researchers and other white-collar workers that can spin off their knowledge into new local start-ups like Springboard. Assembly-line workers too often have no choice but to leave town to find work. Hamilton County, where the Electrolux plant was only a branch of a global operation, is likely to see this exodus now.

Getting new jobs into a hard-hit economy is half the battle. The other half is getting good jobs. Those Maytag line jobs were union jobs paying good wages: the wind turbine jobs, by and large, pay less. As a result, according to the Register, the average Jasper county income fell 11 percent between 2003 and 2009, while the average state income rose 17 percent. This means Newton residents have 11 percent less to spend, which is a blow to other businesses in town.

When trouble strikes, it helps to be near prosperous cities. Many Newton workers have found jobs in Des Moines, Pella, Marshalltown and other relatively strong nearby towns, all about 30 miles away. Hamilton County's nearest city is Fort Dodge, itself a decayed economy. Ames is 40 miles away, Des Moines nearly 70 -- a long commute when gas is $3.50 per gallon.

Finally, all Midwestern manufacturing towns should know by now that the old days of steady support by one traditional company are vanishing. It pays to prepare. Newton didn't but has been scrambling effectively since Maytag left. Webster City, the county seat of Hamilton County, ignored some obvious signs that Electrolux would leave and is just beginning to figure out what it's going to do next.

1 Comment

Richard, point of order: the center of Des Moines is only 36 miles from Newton on I-80. That's "commutable exurban" by most Midwest standards; only about 45 minutes each way and three gallons of gas ($10) a day roundtrip.

A town like Newton can and will adapt and survive by becoming an exurb/far suburb tied to a major metro, as Des Moines (a Midwestern success story) grows outward toward it.

Even the "invisible hand" promotes regionalism without help sometimes.

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